The 10 Biggest D.C. Real Estate Stories Of 2017

From massive waterfront developments to major office and retail deals, 2017 has been a busy year for D.C. commercial real estate. As we prepare to turn the page to 2018, Bisnow took a look back at the top 10 stories that had people talking this year.  

10. Wegmans To Open Its First D.C. Store

The long-awaited entrance of popular grocery chain Wegmans into the nation's capital is finally happening. 

The Rochester, New York-based grocer signed on in May to anchor Roadside Development's redevelopment of the Fannie Mae HQ at 3900 Wisconsin Ave. NW. Wegmans will occupy 80K SF in the development, which will also include a hotel, two residential buildings and 120K SF of additional retail, plus a 55K SF outdoor community and events space. 

Wegmans is also increasing its Northern Virginia presence with two deals signed this fall. The grocer will anchor StonebridgeCarras' mixed-use project at Hoffman Town Center in Alexandria and will open at the Arcola Center in southern Loudoun County.

9. D.C.'s Office Leasing Market Struggles, Especially Downtown

The D.C. office market had a slow year in 2017. The District is forecast to finish the year 43% below its 10-year average for leasing activity. This is due in large part to a slowdown in federal government leasing activity, down 69% from its five-year average. 

The market's struggles have been concentrated most in the core central business district and East End submarkets, which experienced a net 59K SF loss in absorption through the first nine months of 2017 as vacancy in the downtown core rose to 13.2%. The rapid pace of new spec projects can be partially blamed for this rise, with 4M SF of office space currently under construction in the CBD and East End.

The core market has also lost tenants to emerging areas like Capitol Riverfront, Southwest D.C. and NoMa. These three submarkets claimed 43% of the city's leasing activity in Q3 as their vacancy dipped to 9.9%.

8. Data Giant CoStar In High-Stakes Legal Battle With Largest Competitor

D.C. based commercial real estate data giant CoStar, in addition to making a large acquisition and integrating its back-end platform, has spent the year engaged in a legal battle with its largest competitor. 

CoStar kicked off the dispute late last year with an intellectual property suit against Xceligent, alleging the Kansas City, Missouri-based data firm had stolen and resold its proprietary content. The battle escalated in June when Xceligent responded with an antitrust countersuit, accusing CoStar of anticompetitive behavior. 

Since then, CoStar has ramped up its efforts with several subpoenas of Xceligent's employees and third-party contractors. That has coincided with Xceligent's parent company experiencing financial struggles, writing the company's value down to zero and replacing its founder and CEO. 

7. Apartment Rents Begin To Drop Amid Record Supply Boom

This year brought a record number of apartment deliveries to the District, and all of that new supply has begun to impact rents.

During the second quarter, the year's busiest period for apartment deliveries, D.C. experienced a rare drop in rents. The District's effective rent for all classes of apartments fell 0.8%, according to Newmark Knight Frank, the first quarterly decline in two years and just the third since 2010. 

In the third quarter, rents fell again. Class-A apartments experienced a 1.3% rent drop while Class-B rents fell 0.6%, according to Delta Associates. In a twist that surprised experts, these drops were concentrated in established submarkets like Dupont Circle and Logan Circle, while emerging markets such as Capitol Riverfront, where many of the new projects are being built, actually experienced rising rents. 

6. Developers And Activists Face Off Across D.C. With Unprecedented Number Of Appeals

Development projects across D.C. have experienced delays this year due to an unprecedented number of appeals filed by opponents. The lawsuits, filed in the D.C. Court of Appeals, became much more frequent after the court vacated the approval of the $720M McMillan Sand Filtration site development last December. 

Opponents have filed more than 20 appeals this year, creating potential delays for projects already approved by the Zoning Commission that would bring more than 6,500 new housing units to the District. Developers have become increasingly frustrated with the pace of the appeals, worrying they could set their projects back years. 

These appeals have been most frequent in the fast-growing Union Market neighborhood, where a single group has appealed six projects totaling more than 3,500 units. The first of those appeals was dismissed in November, 16 months after it was first filed, allowing Ditto Residential to move forward with its 56-unit project at 301 Florida Ave. NE. 

5. JBG Smith Completes Merger, Embarks On Crystal City Transformation

The merger between The JBG Cos. and Vornado's D.C. business closed in July, forming the region's largest development company and newest public REIT, JBG Smith. The REIT's stock has dropped since it began trading, and CEO Matt Kelly told investors last month he sees the company as significantly undervalued. 

The developer known for its placemaking ability has focused its efforts on revitalizing Crystal City, an office-heavy submarket where it owns a large portfolio of aging buildings. It filed an application in September for a 120K SF retail redevelopment, anchored by an Alamo Drafthouse Cinema. It has also applied for an office-to-residential conversion at 1770 Crystal Drive and is planning similar projects for the next three-block stretch after that. 

4. Nestlé Moving Its U.S. HQ To Rosslyn

The biggest win for the D.C. office market this year came in February, when Nestlé announced plans to move its U.S. HQ to Rosslyn. The company will occupy the top nine floors, more than 200K SF, of Monday Properties' 1812 North Moore, a 35-story skyscraper that has sat vacant since its 2013 delivery. 

The Switzerland-based company plans to invest roughly $40M and create about 750 jobs. It expects to complete the move from its current U.S. HQ in Glendale, California, late next year. 

A primary factor in Nestlé's decision came down to the area's vibrant environment and transportation infrastructure, Nestlé Head of Corporate Real Estate Dawn Striff said at a Bisnow event last week, and Rosslyn hopes to continue improving those characteristics to lure the next big corporate giant. 

3. GSA Cancels Search For A New FBI HQ

The federal government scrapped its search for a new 2.1M SF suburban HQ for the FBI after a series of delays and funding issues. The General Services Administration said it called off the search, which had been narrowed down to sites in Greenbelt, Landover and Springfield, because it could not get the necessary appropriations from Congress to move forward. 

The GSA has now gone back to the drawing board and begun working on a revised FBI HQ plan. Congress had originally given the agency a 120-day deadline to present its plan, but a Senate committee recently granted it an extra 60 days.

The new administration also brought new leadership to the GSA this year, with Dan Mathews named Public Buildings Commissioner in July and Emily Murphy nominated to the administrator position in September. She was sworn in Tuesday.

2. The Opening Of The Wharf

The long-planned transformation of D.C.'s Southwest Waterfront has finally become reality. The Hoffman-Madison Waterfront team on Oct. 12 celebrated the grand opening of The Wharf, and visitors have spent the following two months filling its pedestrian-friendly streets, restaurants and music venues.

With the project's opening, the developer had already leased 75% of the space in its two office buildings, 1000 Maine and 800 Maine. The development's condos have sold quickly at top-of-market prices, including to PN Hoffman CEO Monty Hoffman himself. Data taken in the neighborhood shows The Wharf is bringing a ton of new traffic to the area, and nearby developers are already feeling the rising tide.  

The 1.4M SF first phase is just the beginning of the $2.5B development planned for the 24-acre waterfront site. The development team is going through the approval process for its second phase and has released new renderings of the 1.2M SF project. Designed by a team of 10 architects, it will include three office buildings, one apartment building and one condo building, plus three smaller buildings out on the water. Hoffman hopes to break ground by the end of 2018.

1. D.C. Makes Big Push For Amazon HQ2

Amazon sent shock waves throughout the North American commercial real estate industry in September when it requested proposals for a site to build a new 8M SF HQ. The e-commerce giant received 238 bids for the $5B project, which it said will create 50,000 jobs. 

Jurisdictions throughout the D.C. region submitted proposals. The District pitched four sites, including the Anacostia Riverfront, NoMa, Shaw and Hill East. Fairfax County and Loudoun County teamed up to propose the 26-acre Center for Innovative Technology campus in Herndon, while the developers of The Boro put forward their 15-acre Tysons site. In Arlington, JBG Smith worked with the county to propose its Crystal City portfolio. In Maryland, Gov. Larry Hogan backed Baltimore's Port Covington site while College Park proposed its 150-acre Discovery District. 

The tech company expects to make its decision next year, and D.C. has been cited in many reports as a top contender. If it wins, it could be the jolt the region needs to pick up its slow-growing economy and help it traverse a series of challenges it faces, such as an outmigration of millennials and reduced federal government spending.